Which of the following best defines the classical dichotomy?
A)It is the separation of variables that move with the business cycle and variables that do not.
B)It is the separation of changes in money and changes in government expenditures.
C)It is the separation of endogenous and exogenous variables.
D)It is the separation of real and nominal variables.

Question

Quizplus · Accepted Answer

The classical dichotomy is the separation of real (quantities of goods and services produced) and nominal (measured in units of money) variables. This means that changes in the money supply do not affect real variables such as output, employment, and real interest rates in the long run. It is a cornerstone concept of classical economics.

Which of the Following Best Defines the Classical Dichotomy